Offline stores for Etailers – Logical or Experiential?

Amazon opened it’s second “4-Star” offline store in London at the iconic Westfield Shopping Centre, after its first store at Bluewater. Other than these, the world’s largest e-commerce company operates over 2 dozen “4-Star” stores across the US and is plannig to expand across Europe in 2022 as well. “Amazon 4-star” is built around its customers – what they’re buying and what they’re loving. The store is stocked it with products for everyday needs as well as those a bit more extraordinary. One can find an assortment of some of the most popular categories online including devices, consumer electronics, kitchen, home, toys, books, games, and more. The common thread across all of these products, and every product in Amazon 4-star, is that they are rated 4 stars or higher by our customers, or are top sellers, or new and trending on amazon.com

Other than this, Amazon operates 3 other concept stores – 24 Amazon Books outlets, 18 Amazon Go Convenience stores and 19 Amazon Fresh stores which sell fresh fruits, vegetables and meat alongside knickknacks and condiments. The company, which has been eponymous for its e-commerce assortment, speed of delivery and advance machine learning coupled artificial intelligence, which prods customers with more and more offering, has been testing waters in the offline space, an anathema to its original concept of going online to save operational costs including rent, manpower, storage, etc. Much has been spoken, written and debated about Amazon’s foray in to offline, especially after it acquired Whole Foods in the US a few years ago.

Back in India, Amazon acquired a minority stake in Future Coupons, a subsidiary of the USD 2 Bn Future Group in it’s run up to a fierce three way battle with the Reliance Group’s Retail division and Walmart backed Flipkart alongside India’s Tata Group which owns star Bazaar (offline stores) and Big basket, the internet grocer. Even as Amazon is facing a tough corner against the Future Group in the Indian courts and along with the Singapore arbitrator, in a locked battle with Reliance Group which has proposed to take over The Future Group, there are plans for Amazon to set-up offline stores, somewhat similar to Swiggy’s Instamart and Reliance Fresh’s “Smart collection Centres” through which the two companies are already delivering products to customers in 30-60 mins, a concept popularly termed as Q-Commerce or Quick Commerce.

Meanwhile, Big Basket announced in Oct. ‘21 that it plans to open it’s “Fresho” stores with a pilot in Bangalore. Fresho is the private label brand sold on its website and app, but the store is expected to hold more product categories including daily use FMCG & household items, in direct competition to the neighbourhood kirana stores. On the other hand, Reliance Retail has taken up the Indian Franchise of 7-eleven and opened its first store in Mumbai in October this year. Nykaa, which opened its IPO to a whopping USD 722 million on 10 Nov. ‘21 operates 70 offline stores across India, including at Malls and Airports, started off as an online-only platform, selling cosmetics directly to customers. What started off as pop-up stores to showcase the range and for customers to experiment with the products morphed in to small format Nykaa stores and the expansion veered within a short span of time. Urban Ladder, one of the earliest online platforms to sell furniture online went about an offline expansion spree, eventually to shut down most stores and also to scale down the business massively.

So, what’s with the e-commerce companies opening offline stores? Weren’t they created in the first place to stay off the physical footprint?

Even as offline retailers, from Big Bazaar to Shoppers Stop, fashion brands and watch boutiques and beyond, everyone is today either planning to, or already have a “Phygital” experience – a physical+ digital experience to give customers best of both worlds. While the Offline to Online route is way too expensive and time consuming, the reverse is simple and faster to execute. The inventory is already in place; the platform knows what’s selling well and why; most importantly, they know where the customers are already from – the biggest challenge that offline stores have. While 60% of offline stores perform as planned before they are opened, at least 20-25% do not perform (in Sales and / or Profitability) as expected. The rest are simply unpredictable. For online brands going offline, they save on this conundrum. Further, be it Amazon or Big Basket, they do not necessarily open physical stores for increasing sales, rather to get closer to customers, offer what they already have, seek what customers want and continue to build an online inventory. In most cases, the offline stores of these companies do not even break-even and are written off as marketing & publicity costs as they drive “hoarding value” at best.